Gaining Momentum. Table of Contents

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2 Gaining Momentum In 2016, we continued to conduct our banking business in a professional and responsible manner to maintain healthy growth. We continued to improve service qualit further strengthened through system upgrade, improved operational procedures and expansion of our distribution channels. With vigor, determination and commitment, we are gaining momentum towards achieving our corporate goals. Table of Contents 1 Awards and Recognition 2 Message from the Chairman 4 Message from the President 8 Executive Director/General Manager s Report 12 Business Review 16 Giving Back 19 Key Financial Highlights 20 Corporate Information 21 Corporate Governance Structure 22 Board of Directors 28 Corporate Governance 57 Audited Financial Statements

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4 Message from the Chairman OKNHA SAM ANG Chairman In 2016, Cambodia s economy maintained a satisfactory growth of 7% supported by strong growth of key economic sectors, such as garment and footwear, construction and real estate, and tourism. Meanwhile, the banking sector remained a key driving force of the economy with steady growth to support the sustainable growth of all economic sectors. At the end of 2016, there were 37 commercial banks. Given the growing and competitive banking environment, Vattanac Bank continued to conduct its business in a professional and responsible manner. The Bank continued to improve customer service, developed new products, upgraded and enhanced the security of information technology system, installed modern equipment, updated policies and procedures, and expanded distribution network. 2 Vattanac Bank Annual Report 2016

5 Good Corporate Governance is the core foundation of the Bank s business operations. Corporate Governance The Bank adheres strictly to good corporate governance principles supported by professional management team and staff. The Bank continues to improve internal control system and introduce modern information technology system for effective and secure risk management in compliance with the laws and regulations of the National Bank of Cambodia and relevant entities. Our Target in 2017 In 2017, the Bank plans to open several new branches including Russey Keo, Battambang, and Chaom Chau to expand operations. The Bank has also started construction of branches in Kampong Cham, Pochentong, Toul Kork, Takhmao, Takeo, and Sihanoukville. The Bank plans to launch MasterCard, Union Pay International and Mobile Banking in mid its services to include epayment making the service more effective and efficient in accordance with the MoU signed with the Ministry of Economy and Finance dated 8 November Capital increase plan To comply with NBC s Prakas on minimum registered capital requirement dated 22 March 2016, Vattanac Bank s shareholders resolved to increase the registered capital to US$75 million in March Vision In 2017, Cambodia s economy was projected to grow by 7%. With strong liquidity, Vattanac Bank will take the opportunity to expand its business in a prudent and responsible manner to maintain customers trust and confidence. After the launch of the Tax and Customs Payment Services in the first quarter of 2017, Vattanac Bank will further enhance OKNHA SAM ANG Chairman Vattanac Bank Annual Report

6 Message from the President MADAM CHHUN LEANG President As at 31 December 2016, the Bank s total assets increased by 16% to US$ 407 million. Total customer deposits increased by 18% to US$ 327 million. Profit before tax increased by 12% to US$ 5.3 million compared to Loans position was US$ 185M with NPL rate of 0.1%. In 2016, The Bank fully complied with all prudential requirements of the National Bank of Cambodia. This reflected the Bank s strength and high sense of accountability in its business operations. Human Resource Training The Bank regularly conducts staff development activities to build capacity of the staff, which is a major factor contributing to the success of the Bank. The Bank conducts numerous internal training and sends staff for external training to equip them with relevant knowledge and skills to fulfill their roles and duties professionally and responsibly. 4 Vattanac Bank Annual Report 2016

7 In this growing and competitive banking sector, Vattanac Bank will continue to conduct its business in a professional and responsible manner... Corporate Social Responsibility Vattanac Bank contributes to society and strives to expand its community work. In 2016, the Bank supported and sponsored many activities, such as fundraising for the Cambodian Red Cross, Angkor Sankranta in Siem Reap, training on Life Saving and Disaster Management, International Half Marathon to raise fund for Kantha Bopha Children s Hospital, Walk for A Smile at Bokor National Park to raise funds for Smile Cambodia, and student drawing competition organized by Ministry of Environment. In addition, our staff donated blood to National Blood Transfusion Centre of the Ministry of Health. The Bank has been upgrading the existing card system to support icard and ibank, developing a new system to support payment transaction that is connected to the system of General Department of Taxation and General Department of Customs and Excise, and preparing system connection with the National Bank of Cambodia for FAST and National Shared Switch. In tandem with these developments, the Bank consistently focused on security of the system. The Bank continued upgrading its security firewall system to prevent unauthorized access that may lead to fraudulent transactions or forgery. Recognition The Bank took pride in receiving the 2016 from General Department of Taxation. This recognition reflected the Bank s commitment to fulfill its tax obligation in compliance with all the regulations of the General Department of Taxation. The Bank also won several awards from international publications including Best Bank for Premier Banking, Best Innovation in Retail Banking, Best Customer Service Banking Brand and Best Commercial Bank in Cambodia. These awards recognize the Bank s good reputation in terms of innovative and efficient financial services and being a bank trusted by its customers and the public. Vattanac Bank Annual Report

8 Message from the President (Continued) Gold certificate on Tax Compliance is presented by H.E. Kong Vibol, Director General of the General Department of Taxation to Madam Chhun Leang, President of Vattanac Bank accompanied by Mr. Chan Kok Choy, the Executive Director and General Manager of Vattanac Bank. On 08 November 2016, Vattanac Bank reached a significant milestone the signing of MoU with Ministry of Economy and Finance on Nationwide Tax Payment Services (for General Department of Taxation and General Department of Customs and Excise of Cambodia). The tax payment services were launched to the public in the first quarter of Gaining Momentum We continued to achieve our business goals with energy, vigor and commitment supported by good banking practices and international standards. These results reflected that we were gaining momentum as we have been moving strongly towards our corporate goals. The challenge is to keep this momentum going so that we can charge ahead in the coming years to attain our corporate objectives. 6 Vattanac Bank Annual Report 2016

9 In 2017, Cambodia s economy is projected to grow by 7% and will maintain this momentum supported by key economic sectors. With the growth, the banking sector will remain competitive. In this growing and competitive market, Vattanac Bank will continue to conduct its business in a professional and responsible manner to preserve its values and maintain the trust of its customers and stakeholders. We would like to take this opportunity to express our sincere appreciation to the dedicated Board of Directors for spearheading improvement in all aspects of our work, especially in strengthening corporate governance to enhance our business performance. The results were achieved through the work of the management and staff of Vattanac Bank. Their consistent effort will bring the Bank to a higher level of achievement. We are also grateful to the National Bank of Cambodia for its continued guidance and support. Lastly, we would like to thank our customers and business partners for their loyal support, confidence and trust in Vattanac Bank. We look forward to their continued partnership with Vattanac Bank. MADAM CHHUN LEANG President Vattanac Bank Annual Report

10 Executive Director/General Manager s Report Customer service remains as one of the Bank s strengths, earning the Bank 5 international awards in MR. CHAN KOK CHOY Executive Director/General Manager Introduction Cambodia s economy grew by 7% in 2016 supported by growth in the garment industry, agriculture, property and tourism sector. Various developments including the anticipated cancellation of TPP provided some optimism that the garment industry will continue to do well in the short and medium term. There the construction and real estate sector and the low prices of Cambodia s agricultural products. Under these circumstances, Vattanac Bank adopted a cautious and pragmatic approach towards business development. Financial Performance The Bank s financial performance in 2016 was satisfactory. Total assets increased by 16% to US$407 million; deposits grew by 18% to US$ 27 million; and profit before tax increased by 12% to US$5.3 Million. The average cost of fund was 1.89% while the average lending rate was 7.67%. Due to a more stringent approach on lending and the repayment of several big loans the Bank experienced a decline in loans of 4% to US$185 million. On the positive side, our NPL was less than 0.1%. 8 Vattanac Bank Annual Report 2016

11 Expansion/New Products The Bank opened VIP II Branch along Highway No. 3, in front of Vattanac Industrial Park II in September 2016 to serve factories, SMEs and residents in its vicinity. Construction for several new branches has started including at Battambang, Russey Keo, and Chaom Chau (along Highway No. 4), which are expected to commence operation in Efforts were made to enhance the features of our Internet Banking and Visa Money Card to make them more user friendly, secure and convenient to use. Our credit card system was further upgraded to comply with the PCI standard and to cater for implementation of the Mastercard and UnionPay International Acquiring and Issuing targeted to go live in June In November 2016, the Bank signed a Memorandum of Understanding with the Ministry of Economy and Finance on Nationwide Revenue Collection Services for General Department of Taxation and General Department of Customs and Excise, which the bank will launch in February Our implementation of the MOU will not only provide convenient tax and customs payment service to the public but also serve as our contribution to the government s reform effort to increase revenue through more efficient tax collection. In addition, the GDT 2017 and will allow taxpayers to make payments via the internet 24/7. Information Technology During the year, the bank invested on upgrading and updating its systems for better performance and enhanced security. The Bank conducted Host Security Module (HSM) migration for Card Management System in order to secure the encryption and decryption, and ensure high speed performance and security. We completed online National Bank of Cambodia (NBC) report automation, which enhanced speed and accuracy in the submission of reports to NBC. Card personalization system software and profiles migration were completed. Vattanac Bank Annual Report

12 Executive Director/General Manager s Report (Continued) Customer Service/Staff Training Customer service remains as one of the Bank s strengths, earning the Bank 5 international awards in The bank held 2 Customer Care Campaigns for service with the theme: Service with a Smile. Vattanac Bank places great emphasis on technical and soft skills training to ensure a high level of customer service satisfaction. In 2016, the bank organized a total of 80 training sessions for 738 staff attendees. Corporate Social Responsibility The bank supports various community service activities and organizations. It also encourages its staff to participate in projects that can help the community. Outlook 2017 Cambodia projects a growth rate of 7% in This outlook may be affected by the performance of agriculture and garments and shoes, and the bearish real estate and construction sector. Looking forward, Vattanac Bank is expected to pursue a prudent approach towards business development through proper implementation of its internal control and risk management mechanism and strict compliance with NBC s regulations. Appreciation We would like to express our gratitude to our Board of Directors for their support and guidance. We acknowledge our staff s loyalty, enthusiasm, commitment and hard work. We thank our customers, for their trust and support through all these years and in the years to come. Finally, we like to thank H.E. Chea Chanto, the Governor, senior management and staff of NBC for their guidance and support. Mr. Chan Kok Choy Executive Director/General Manager 10 Vattanac Bank Annual Report 2016

13 Key Financial Highlights 9.6% 12.8% 15.7% Gross Income at US$19.4 million in 2016 with growth of 9.6% compared to 2015 Profit Before Tax grew by 12.8% from US$4.7 million to US$5.3 million in 2016 Total Assets grew by 15.7% Gross Income US$19.4 million Profit Before Tax US$5.3 million Total Assets US$406.8 million % US$ % million Deposits grew by US$50.5 million or 18.3% growth compared to 2015 Gross loans & advances declined to US$185.4 million in 2016 Shareholders equity grew 5.8% to US$76.4 million Deposits US$326.9 million Gross Loans & Advances US$185.4 million Shareholders Equity US$76.4 million Vattanac Bank Annual Report

14 Business Review New Products and Services Development The MoU Signing Ceremony at the Ministry of Economy and Finance Seated: H.E. Dr. Chou Kimleng, Secretary of State (right), and Mr. Chan Kok Choy, Executive Director/General Manager, Vattanac Bank (left) Standing at the center: H.E. Kong Vibol, General Director of General Department of Taxation; Oknha Sam Ang, Chairman, Vattanac Bank; and Madam Chun Leang, President, Vattanac Bank Tax Payment Services The Bank celebrated its 14th Anniversary on November 8, 2016 with an important milestone the signing of MoU with Ministry of Economy and Finance represented by GDT and GDCE, on Nationwide Tax Payment Services through Vattanac Bank. The signing ceremony was held at the Ministry of Economy and Finance and was presided over by the Secretary of State, H.E. Dr. Chou Kimleng. The MoU enables the Bank to support the Royal Government of Cambodia in the collection of all kinds of taxes and customs payments. The service was successfully launched in February Vattanac Bank Annual Report 2016

15 Opening of Vattanac Industrial Park II Branch The Bank opened its 7th branch at the Vattanac Industrial Park II on 9 September The branch is located along the National Road No. 3, which is around 9 kilometers away from the Chaom Chau banking services to the businesses at the industrial park II and to customers residing within the park and in the surrounding areas. Madam Chhun Leang (center), President of Vattanac Bank with the staff of Vattanac Industrial Park II Branch and some management staff during the opening on 9 September briefing on ibank and Visa Money Card on October MasterCard and Union Pay International The Bank officially became a member of MasterCard on 31 March 2016 and UPI on 21 March The Bank proceded to prepare the systems and processes for the issuance of the cards and its acceptance at the Bank s ATMs. We will complete the online certification to issue and acquire cards in early 2017 and will commence services on the first half of Launching of ibank and Visa Money Card, The Internet Banking (ibank/ibank+) and the Visa Money card were launched for testing in mid 2015 to collect feedback from customers. In October 2016, Bank conducted products briefing for a select group of invitees and provided more detailed information about these 2 products. Vattanac Bank Annual Report

16 Business Review (Continued) Frontline staff from all branches during the Customer Care Campaign 11 at Tonle Bassac Restaurant on 4 December Customer Care Campaign 10 and 11 To improve the Bank s service, the Customer Care Campaign 10 was organized on 29 May 2016 with the theme Service with A Smile. The event was attended by Bank s tellers and front office staff. The seminar emphasized to the frontline staff the importance of serving the customers with a smile, and encouraging customers to give their feedback on the quality of services and on the staff behavior while serving them. The theme and action plans of CCC10 were reinforced and discussed during the Customer Care Campaign 11 held on 4 December Branches that met the target for customer feedback and those that earned the highest percentage of excellent ratings were awarded with certificates of recognition. Outstanding customer service staff were also recognized and given Golden Service trophies. International Awards and Recognition Five awards from internationally recognized publications highlighted the Bank s achievements in 2016, including: Best Customer Service Banking Brand Cambodia from Global Brands Magazine; Best Bank for Premier Banking Cambodia from Global Business Outlook; Best Bank for Premier Banking Cambodia 2016 from Global Banking and Finance Review; and Best Innovation in Retail Banking Cambodia 2016 and Commercial Bank of the Year Cambodia 2016 from International Banker. 14 Vattanac Bank Annual Report 2016

17 Giving Back We have always sought to balance the interests of the Bank with the welfare of the community that we serve. We promote a culture that is based on a strong sense of community and sharing. It is our belief that the success of community development projects can only bring about greater success to all who participate in it, including our Bank. Vattanac Bank Annual Report

18 Giving Back Implementation of CIFRS Workshop Angkor Sankranta Festival 2016 Life Saving and Disaster Management Training Vattanac Bank staff participated in the demo session Cycling for Charity 16 Vattanac Bank Annual Report 2016

19 Marathon Walk for A Smile Vattanac Bank Annual Report

20 Giving Back Smile Cambodia Surgical Mission at Kampong Cham Blood Donation Career Fair 2016 Vattanac Bank was present at the Ministry of Environment Drawing Contest Tax Seminar by GDT Kong Vibol 18 Vattanac Bank Annual Report 2016

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22 Corporate Information Branches Head Office Level 2, Vattanac Capital No. 66, Preah Monivong Blvd. Phnom Penh T (855) Board of Directors Oknha Sam Ang Madam Chhun Leang Mr. Chan Kok Choy Madam Tal Nay Im Ms. Sam Ang Kanika Mr. Sam Ang Vattanac Ms. Sam Ang Leakhena Mr. Tang Yue Kwong Mr. George Teo Choa Chee F (855) SWIFT: VBLCKHPP service@vattanacbank.com Website: Chairman President Executive Director/General Manager Executive Director Executive Director Main Office Level 1, Vattanac Capital Mall No. 66, Preah Monivong Blvd. Phnom Penh T (855) F (855) Preah Norodom Branch No. 89, Preah Norodom Blvd. Phnom Penh T (855) F (855) Olympic Branch No. 43, St. 286, Sangkat Olympic Khan Chamkarmon, Phnom Penh T (855) F (855) Executive Committee Madam Chhun Leang Madam Tal Nay Im Mr. Chan Kok Choy Mr. Kang Sopheak Mr. Tom Piseth Ms. Ros Dara Overseas Correspondent Banks Chairperson Executive Director/General Manager Deputy General Manager Head, Banking Operation Head, Credit Operation Wells Fargo Bank National Association, USA Standard Chartered Bank, USA Wells Fargo Bank National Association, United Kingdom UniCredit Bank AG, Germany Bred Banque Populaire, France United Overseas Bank Limited, Singapore DBS BANK, Singapore OCBC BANK, Singapore Industrial & Commercial Bank of China Limited, Singapore Thanachart Bank Public Company Limited, Thailand Joint Stock Commercial Bank for Foreign Trade of Vietnam, Vietnam Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietin), Vietnam Tumnob Tuek (St. 271) Branch No. 78, St. 271, Sangkat Tumnob Tuek Khan Chamkarmon, Phnom Penh T (855) F (855) Steung Meanchey Branch No. 88, Veng Sreng St. (in front of Vattanac Industrial Park I) Sangkat Steung Meanchey, Khan Meanchey, Phnom Penh T (855) F (855) Vattanac Industrial Park II Branch National Road No. 3, Krang Pongro Village, Sangkat Krang Pongro Khan Dangkao, Phnom Penh T (855) F (855) Siem Reap Branch No. 888, Sivatha Blvd., Siem Reap T (855) F (855) Vattanac Bank Annual Report 2016

23 Corporate Governance Structure Internal Audit Department Audit Committee New Activities & Products Committee Board of Directors Risk Management & Compliance Committee Risk Management & Compliance Department Human Resource & Training Department Human Resource & Training Management Projects Card & Department Finance & Treasury Department Assets & Liabilities Management Assets and Liabilities Committee Human Resource Committee Executive Committee Card & Committee New Branch Opening Committee Branch Opening Preparation Banking Operations Department & Property Section Credit Operations Department Credit Risk Management Credit Committee IT Committee IT Risk Management Operation Risk Management Committee Operational Risk Management & Branch Support Customer Service Committee Customer Service Enhancement Business Development Department Public Affairs Department Branch Customer Service Committee IT Department Banking Operations Vattanac Bank Annual Report

24 Board of Directors Lok Oknha Sam Ang 22 Vattanac Bank Annual Report 2016

25 Lok Chumteav Oknha Chhun Leang Vattanac Bank Annual Report

26 Board of Directors Mr. Chan Kok Choy Madam Tal Nay Im 24 Vattanac Bank Annual Report 2016

27 Ms. Sam Ang Kanika Mr. Sam Ang Vattanac Vattanac Bank Annual Report

28 Board of Directors Mr. Tang Yue Kwong Mr. George Teo Choa Chee 26 Vattanac Bank Annual Report 2016

29 Ms. Sam Ang Leakhena Vattanac Bank Annual Report

30 Corporate Governance The s of the Board Seated: Lok Oknha Sam Ang, Chairman (center), Lok Chumteav Oknha Chhun Leang, Mr. Chan Kok Choy (far left), Mr. George Teo Choa Chee (right), Mr. Tang Yue Kwong (far right) Standing: Mr. Sam Ang Vattanac (left), Ms. Sam Ang Leakhena (right) Not in photo: Madam Tal Nay Im, Ms. Sam Ang Kanika Board of Directors (The Board) Vattanac Bank s corporate governance policy states that the Bank shall be led and managed by the Board of Directors whose members are appointed by the Bank s shareholders general assembly and subject to the National Bank of Cambodia s approval. The Board has the power to establish different committees under its control including three Board Committees, an Executive Committee (EC) which is responsible for the overall operations of the Bank, and 8 other operational committees to assist the EC in carrying out its duties efficiently. 28 Vattanac Bank Annual Report 2016

31 The Board also appoints the top Executive Management such as President, General Manager, Head of Internal Audit Department, and Head of Risk Management and Compliance Department with NBC s approval in order to achieve success for the Bank. The Executive Management is accountable to the Board. The Board leads and manages the Bank by establishing policies, providing strategic thus maintaining an effective Internal Control System. The Board also ensures that the Executive Management conducts the business affairs of the Bank with integrity and transparency, in compliance with laws and regulations and with the ultimate aim of enhancing value and achieving sustainable growth for the Bank. Oknha Sam Ang Madam Chhun Leang Mr. Chan Kok Choy Madam Tal Nay Im Ms. Sam Ang Kanika Mr. Sam Ang Vattanac Ms. Sam Ang Leakhena Mr. George Teo Choa Chee Mr. Tang Yue Kwong Chairman President Executive Director/General Manager Independent Director Independent Director Vattanac Bank Annual Report

32 Corporate Governance (Continued) Meetings of the Board of Directors and Board Committees The Board and its committees conducted 4 meetings each in The number of Board of Directors and Board Committee meetings in the 2016 financial year and the attendance of Directors at these meetings are as follows: Attendance of the Board s Meetings held during financial year ending 31 December 2016 Board Audit Committee Risk Management & Compliance Committee New Activities & Products Committee Oknha Sam Ang 4 Madam Chhun Leang 4 Mr. Chan Kok Choy 4 4 Madam Tal Nay Im Ms. Sam Ang Kanika Mr. Sam Ang Vattanac Ms. Sam Ang Leakhena Mr. Tang Yue Kwong Mr. George Teo Choa Chee * Madam Tal Nay Im was appointed as chairperson of NAP committee in October 2016 to replace Mr. George Teo Choa chee Note: Chairperson Not Applicable In 2016, the Board approved the following key matters: Increase of registered capital to US$75M Audited financial statement for year ended 2015; Appointment of Deloitte as external Budget and Action Plan for 2017; Opening of Russey Keo branch; Revised Corporate Governance Policy, Internet Banking Policy, and Credit Card Policy Opening of accounts with local and overseas correspondent banks; Internal audit plan for year 2017 Appointment of Head of Internal Audit Compliance Department Appointment of Madam Tal Nay Im as Chairperson of NAP Committee Launching of tax collection service Implementation of FAST system 30 Vattanac Bank Annual Report 2016

33 Board Committees The Board Committees are independent from the Executive Management and report directly to the Board. The Committees are: Internal Audit Committee, Risk Management and Compliance Committee, and New Activities and Products Committee. 1. Audit Commitee The Audit Committee was established to assist the Board in carrying out the internal audit responsibilities and to ensure the efficiency of the Bank s overall internal control system. The Committee is responsible for establishing policy, procedures and guidelines related to internal audit, updating them when necessary and submitting them to the Board for approval. The Committee reviews the integrity of the financial statements, and also reviews the statements of the Bank to ensure compliance with the guidelines issued by the National Bank of Cambodia and with Cambodian Accounting Standards. The Audit Committee also reviews internal financial controls and recommends the annual financial results to the Board for approval. The Committee also monitors and ensures that all policies, guidelines and procedures issued by the Board and by the Executive Management are always respected. Additionally, the Audit Committee monitors and reviews the effectiveness of the Bank s internal audit function by preparing yearly audit plans of the internal auditors and submits to the Board for approval. The Audit Committee submits to the Board significant audit findings, and provides solutions and recommendations. The Audit Committee meets with the internal auditor without the presence of the Executive Management four times a year. When necessary, and to clarify specific issues, the Committee may invite any member of Executive Management to attend its meetings. Vattanac Bank Annual Report

34 Corporate Governance (Continued) Board Committees (Continued) The Audit Committee is composed of the following: Mr. Tang Yue Kwong Mr. George Teo Choa Chee Madam Tal Nay Im Mr. Sam Ang Vattanac Ms. Sam Ang Kanika Ms. Sam Ang Leakhena Chairman Independent Director Independent Director *The Head of Internal Audit Department serves as the Secretary of the Committee. In 2016, a total of 4 committee meetings were convened as planned. The internal audit activities consisted of full scale checks and spot checks of various banking operations at Head Office s departments and at the branches. Frequent surprise cash counts and checks of other transactions were conducted. The committee reviewed internal and external audit reports and provided recommendations to Executive Management on actions to take on the findings. The Committee submitted the Audit Plan for 2017 to the Board and the latter approved the plan. 32 Vattanac Bank Annual Report 2016

35 2. Risk Management and Compliance Committee The Risk Management and Compliance Committee was established to assist the Board in monitoring key risks which may affect the Bank s business operations including credit risk, market risk, liquidity risk and operational risk. The Committee also assists the Board operates its business in compliance with all relevant laws and regulations, including chairperson of the RMCC is an independent Board member. The Risk Management and Compliance Committee is composed of the following: Mr. George Teo Choa Chee Mr. Tang Yue Kwong Madam Tal Nay Im Mr. Sam Ang Vattanac Ms. Sam Ang Kanika Ms. Sam Ang Leakhena Chairman Independent Director Independent Director *The Head of Risk Management and Compliance Department serves as the Secretary for the Committee. In 2016, the committee revised and approved the AML & CFT Guidelines, and submitted the revised AML & CFT Policy to the board for approval. The reason for the revisions was to adopt the new methodology especially on the new screening system. Key AML & CFT compliance achievements in 2016 included the following: Conducted daily, weekly and monthly AML & CFT compliance review over the account opening and customers transactions including cash transaction, VISA transaction, remittance, and Western Union transaction; Conducted annual KYC and CDD on all correspondent banks; Upgraded from online compliance check to automated screening system for AML & CFT; Conducted five AML & CFT awareness training sessions to 95 new staff members; Conducted three AML & CFT refresher training sessions to 68 staff members and managers; and Conducted AML & CFT test for 90 staff who were unable to attend the training within the year. Vattanac Bank Annual Report

36 Corporate Governance (Continued) Board Committees (Continued) 3. New Activities and Products Committee (NAP) The New Activities and Products (NAP) Committee shall review any new transaction, service, equity participation, outsourcing decision, or whatsoever that would involve changes: upgrades, IT developments, legal aspects of compliance and risk assessment, consumer protection, policy, procedures, processes and organizational changes, accounting entries and chart of accounts upgrade, etc. which if not appropriately performed could result in unidentified operational, legal, compliance, or any type of risk for the Bank. The NAP Committee has to ensure that the following are in place before a product or service is launched: Terms and conditions; Features; Fees and other charges structure; Target customers; Business forecast/projection; Procedures and guidelines to handle the product/service; IT system and support; Appropriate training to staff; Identification and definition of the possible risks exposure pertaining to the product/service. The committee is composed of the following: Madam Tal Nay Im Mr. George Teo Choa Chee Mr. Tang Yue Kwong Ms. Sam Ang Kanika Mr. Sam Ang Vattanac Ms. Sam Ang Leakhena Mr. Chan Kok Choy Chairman Independent Director Independent Director Executive Director/General Manager * Upon the recommendation of the Committee Chairman and approval of the Board on 17 October 2016, Madam Tal Nay Im became the new Chairperson for the New Activities and Products Committee. * Head of the Banking Operations Department is the Secretary of the Committee 34 Vattanac Bank Annual Report 2016

37 On 9 September 2016, the Bank opened the Vattanac Industrial Park II Branch located along the National Road No. 3. The Committee also planned to open branches in Russey Keo, Chaom Chau and Battambang in The NAP Committee reviewed and endorsed the NBC Fast System, National Shared Switch, payment gateway services, and firewall security replacement in Internet Banking Tax Payment Services Payroll Services Deposits, Loans and Advances Cards Remittances Trade Finance & Trade Services Foreign Exchange Money Transfer Premier Banking Vattanac Bank Annual Report

38 Corporate Governance (Continued) Executive Committee The Executive Committee was created by the Board to oversee the general management of the Bank. The committee is composed of the following: Madam Chhun Leang Mr. Chan Kok Choy Madam Tal Nay Im Mr. Kang Sopheak Mr. Lim Chin Wan Mr. Tom Piseth Ms. Ros Dara Chairperson President Executive Director/General Manager Deputy General Manager Deputy General Manager Head, Banking Operation Head, Credit Operation Taking into consideration the interests of the Bank, the Executive Committee is responsible for: planning, formulating and reviewing the Bank s strategies and annual budget; developing necessary policies for Board approval and issuing guidelines and procedures for implementing those policies; and ensuring risk management and control in line with regulatory requirements. The Committee is also responsible for the promotes proper delegation of duties, making to the different levels of executive management. In addition, the Committee has the responsibility to regularly report to the Board on new regulatory developments and financial reporting standards which are relevant to the Bank s business. 36 Vattanac Bank Annual Report 2016

39 In 2016, the Executive Committee approved the following key matters: Internet Banking Guidelines Card Issuing and Acquiring Procedures and Guidelines IT Procedures and Guidelines AML/CFT Guidelines Premier Banking Guidelines Purchase of additional DELL servers and EMV Card Personalization System New corporate website and Internet Banking security assessment Renewal of web application firewall and new security firewall replacement Implementation of Fast and Secure Transfers (FAST), National Shared Switch (NSS), Verified By Visa (VBV) and ibank Registration Purchase of assets and IT equipment for new branch opening Renewal of cash and electronic computer crime insurance policy Committees Under the Executive Committee To ensure the effective operations of the Bank, the Board established eight Management Committees: Credit, Deposits and Loans, Human Resource, Information Technology, Opening. The management committees are tasked to assist the Executive Committee in satisfaction in the Bank s services. Vattanac Bank Annual Report

40 Corporate Governance (Continued) Committees Under the Executive Committee (Continued) Management Group s Involved in Committees in 2016 Head of IT, 38 Vattanac Bank Annual Report 2016

41 1. Credit Committee The Credit Committee was established to assist the Executive Committee with the Bank s credit operations. The Credit Committee is responsible for reviewing and implementing policies and procedures of credit facilities as determined by the Board and in compliance with the NBC s guidelines and regulations. These duties and roles include credit identification; assessment, measurement, approval, review and recovery of loans to ensure that ratio; and management of the Bank s credit risk. The Credit Committee provides oversight on the administration and effectiveness of the Bank s Credit Policy, and reviews the strategies to develop and achieve the credit and lending goals of the Bank. The committee also makes appropriate recommendations to the Board through the Executive Committee. The committee is composed of the following: Madam Chhun Leang Mr. Chan Kok Choy Madam Tal Nay Im Mr. Kang Sopheak Mr. Tom Piseth Ms. Ros Dara Chairperson President Executive Director/General Manager Deputy General Manager Head, Banking Operation Head, Credit Operation In 2016, the Credit Committee actively and prudently monitored the performance and quality of the Bank s credit portfolio. It reviewed loan applications and reassessed approved loans to ensure that the Bank is in compliance with lending regulations and the Bank s Credit Policy. The favorable audit assessment by the National Bank of Cambodia in 2015 and the latest audit by Deloitte in 2016 reaffirmed the Bank s compliance to prudential loan assessment and control. The Committee organized 12 meetings to discuss challenges, strategies and actions to ensure a sustainable growth. In addition, it met 112 times to consider loan applications and extension of credit facilities in Vattanac Bank Annual Report

42 Corporate Governance (Continued) Committees Under the Executive Committee (Continued) 2. Assets and Liabilities Committee The Assets and Liabilities Committee (ALCO) was established to assist the Executive Committee in managing the assets and liabilities of the Bank. The Committee s main responsibility is to maximize the Bank s profitability, efficiency and effectiveness. Its activities include managing, reviewing and monitoring risks related to the Bank s liquidity levels, interest rates, exchange rates and market development. The Committee also has the responsibility to ensure that the Bank is always in compliance with NBC s prudential ratio requirements, such as liquidity, solvency and net worth. In terms of liquidity management, the Committee prepares the contingency plan by identifying the source of liquidity that the bank can immediately access. The Committee focuses on the security and management of treasury as it endeavors to develop relationships with local and international banks. The Committee monitors closely the terms and conditions and the pricing quoted by potential partners prior to making the final selection. The committee is composed of the following: Mr. Kang Sopheak Mr. Chan Kok Choy Madam Tal Nay Im Mr. Tom Piseth Ms. Ros Dara Ms. Eng Sokphalla Chairperson Deputy General Manager Executive Director/General Manager Head, Banking Operations Head, Credit Operations Head, Finance and Treasury 40 Vattanac Bank Annual Report 2016

43 Below are NBC s key prudential requirements and Vattanac Bank s compliance status as at 31 December 2016: No. NBC s Key Prudential Requirement NBC s Limit Vattanac Bank as at 31 Dec 2016 Compliance Yes/No 1. Single large loan exposure Max 20% 15.50% Yes 2. Total large loan exposure Max 300% 85.47% Yes 3. Total fixed assets Max 30% 19.39% Yes 4. Net open position in one currency Max 20% Yes 5. Local fund collected used locally Min 100% % Yes 6. Solvency ratio Min 15% 28.55% Yes 7. Liquidity ratio Min 60% % Yes 8. Net worth Min US$37.5M US$ 73.7M Yes The committee met twelve times in 2016 to review the efficiency and effectiveness of the Bank s management of assets and liabilities and to recommend ways to better administer them. Vattanac Bank Annual Report

44 Corporate Governance (Continued) Committees Under the Executive Committee (Continued) 3. Human Resource Committee The Human Resource Committee was established to assist the Executive Committee in managing the human resources of the Bank. The main responsibility of the Human Resource Committee is to prepare policies on remunerations in a transparent manner for the Bank s staff to be submitted to the Executive Committee for approval. The Human Resource Committee reviews and recommends for endorsement by the Executive Committee, salary changes and performance bonuses for staff at all levels. The Human Resource Committee recommends to the Executive Management on the recruitment, hiring, nominations, promotions and staff retention initiatives that are in compliance with Human Resource Management Policies. The Committee leads in making training and development plans, including providing for Code of Conduct and professional skills training for existing staff and can efficiently serve the Bank. The committee is composed of the following: Madam Chhun Leang Mr. Chan Kok Choy Madam Tal Nay Im Mr. Kang Sopheak Mr. Hong Sovandara Chairperson President Executive Director/General Manager Deputy General Manager Head, Human Resources & Training In 2016, the Committee made staffing plan for the expanding operations and new branches for the coming year by recruiting from external sources and by honing the internal staff skills to take on new and higher responsibilities and roles, through trainings. The Committee strengthened the organizational structure at Head Office and improved those at the branches to better cope with the growing operations and to enhance internal control. 42 Vattanac Bank Annual Report 2016

45 4. IT Committee The IT Committee was established to assist the Executive Committee in managing the Bank s information system. The IT Committee is responsible for the development and management of the Bank s information system, and the monitoring and controlling of risks to ensure the effectiveness and security of the information management system. To ensure uninterrupted business operations, the Committee also developed a Business Continuity Plan (BCP) that was approved by the BOD. The Plan outlines strategies, actions and steps that will be taken to cope with all risks that may occur and enable the Bank to resume operations. The committee is composed of the following: Mr. Lim Chin Wan Mr. Chan Kok Choy Madam Tal Nay Im Mr. Kang Sopheak Mr. Tom Piseth Mr. Khun Piseth Chairperson Deputy General Manager Executive Director/General Manager Deputy General Manager Head, Banking Operations Head, Information Technology In 2016, the Bank started to implement a new version upgrade of Card Management System along with other channels of banking service such as Mobile Banking, Union Pay International, MasterCard, FAST and National Shared Switch to be completed by end of December The committee continued to strengthen processes and restructure IT resources: the Data Centre was further improved with enhanced security protection; the yearly Disaster Recovery exercise was conducted successfully and confirmed the readiness of the system and the continuity of operations in the event of disaster; and the automated business intelligence software implemented in 2015 has been widely used. Vattanac Bank Annual Report

46 Corporate Governance (Continued) Committees Under the Executive Committee (Continued) 5. Operational Risk Management Committee The Operational Risk Management Committee was established to assist the Executive Committee in monitoring and managing the Bank s operational risks. The Operational Risk Management Committee is responsible for monitoring and assessing the Bank s operational risks and reports to the Executive Committee. The Committee has formulated strategies to manage the Bank s operational risks by developing management systems and procedures to ensure the effective dealing The committee is composed of the following: with any direct or indirect risks to the Bank s operations as well as any irregularities or mistakes that may occur in the operating system and internal procedures. The Committee also plays an important role in reviewing, revising, updating, and amending policies, procedures and guidelines. Some of those dealt with are related to management of cash and collateral, different kinds of accounts, fund transfers, stored value cards and internet banking. Mr. Tom Piseth Mr. Chan Kok Choy Madam Tal Nay Im Mr. Kang Sopheak Mr. Lim Chin Wan Mr. Khun Piseth Ms. Eng Sokphalla Ms. Vann Theany Chairperson Head, Banking Operations Executive Director/General Manager Deputy General Manager Deputy General Manager Head, Information Technology Head, Finance and Treasury Head, Trade Finance & Financial Institutions In 2016, the Operational Risk Management Committee reviewed and approved the launch of Internet Banking, Tax Collection Services, and Customs Tax Collection Services; and defined the cash holding limit for each branch. 44 Vattanac Bank Annual Report 2016

47 6. Customer Service Committee The Customer Service Committee assists the Executive Committee in managing customer service in the Bank. At every meets to assist the Committee in fulfilling its duties efficiently. The Customer Service Committee aims to promote excellence in delivery of service to Vattanac Bank s customers. The Committee s main responsibilities are to regularly monitor, assess, enhance and improve the quality of customer service. The Committee provides remedies and problems. In addition, the Committee sets procedures and guidelines and regularly trains the Bank s customer service sufficient professional skills for serving customers, and motivating them to aspire for excellence. The committee is composed of the following: Mr. Chan Kok Choy Mr. Uch Sameth Mr. Hong Sovandara Mr. Frederick Almeida Ms. Cynthia Maria Reimer Ms. Kang Sokkhim Chairperson Executive Director/General Manager Deputy Head, Banking Operations Head, Human Resource & Training Deputy Head, Public Affairs Consultant Head, Secretariat Vattanac Bank Annual Report

48 Corporate Governance (Continued) Committees Under the Executive Committee (Continued) In 2016, the Customer Service Committee reviewed and revised the Premier Banking Guidelines, and better defined the benefits and advantages the premier customers receive. The Executive Committee approved the revised guidelines in June. The Customer Service Campaign 10 (CCC 10) held in May 2016 was attended by the bank s 100 front liners with the theme Service with a Smile. After 6 months, in December 2016, a follow up CCC 11, was held to review, evaluate, reiterate and strengthen best practices for Service with a Smile ; to recognize outstanding customer service staff; and to award branches that achieved the monthly target for customer feedback and received the highest percentage of excellent ratings from customers. The committee also prepared documentation on the bank s customer service that qualified the bank to receive 5 customer banking and finance publications. 46 Vattanac Bank Annual Report 2016

49 7. New Branch Opening Committee The New Branch Opening Committee (NBOC), formalized in early 2015, ensures that issues pertaining to opening of new branches are addressed properly and in a timely manner. The Committee oversees the Bank s branch expansion projects and provides recommendations on the actions, timeframe and relevant arrangements for project implementation. The Committee is composed of the following: Mr. Chan Kok Choy Mr. Kang Sopheak Mr. Tom Piseth Mr. Frederick Almeida Ms. Kang Sokkhim Chairperson Executive Director/General Manager Deputy General Manager Head, Banking Operations Deputy Head, Public Affairs Head, Secretariat Department In 2016, the New Branch Opening Committee reviewed and approved the layout and The Committee also studied the architectural concepts of the other branches which the Bank plans to open after Vattanac Bank Annual Report

50 Corporate Governance (Continued) Committees Under the Executive Committee (Continued) 8. Card and E-banking Committee The Card and E-Banking Committee assists the Executive Committee in formulating and supporting Card and E-banking projects, strategies and budget; addressing Card and E-banking related issues; and overseeing the effectiveness, administration and enhancement of system security to achieve the Card and E-banking s business objectives and to protect the interests of the Bank and customers. The Card and E-banking Committee is responsible for reviewing, developing and implementing policies, procedures and guidelines related to card and E-Banking in compliance with national/international card association guidelines, regulations and best practices. The committee is composed of the following: Mr. Lim Chin Wan Mr. Chan Kok Choy Mr. Kang Sopheak Mr. Tom Piseth Mr. Khun Piseth Mr. Samaraweera Ravinda Chinthaka Ms. Chan Pheaktra Mr. Frederick Almeida Mr. Seng Kungkea Mr. Cheng Sotheavuth Chairperson Deputy General Manager Executive Director/General Manager Deputy General Manager Head, Banking Operations Head, Information Technology Project Manager, Card & E-banking Deputy Head, Card & E-banking Deputy Head, Public Affairs Special Proj. Officer, Card & E-banking Senior Officer, Banking Operations 48 Vattanac Bank Annual Report 2016

51 In 2016, the committee approved the revision of the Card Policy. The new policy aims to strengthen the operations and governance of the department and overall card business. The committee also developed new partnerships with Mastercard and UPI. The committee completed the online certification for both card schemes in A new Internet Banking Policy was created and subsequently Internet Banking Guidelines and Procedures were established to implement the Policy. ibank and ibank+, are both Internet Banking products that the committee launched in ibank is the online banking platform designed for retail customers whereas, ibank+ is designed for corporate customers. Vattanac Bank Annual Report

52 Corporate Governance (Continued) Risk Management Vattanac Bank takes proactive and prudent measures to manage and control risks due to changes in the business environment, such as credit risks, liquidity risks, market risks and operational risks that could greatly affect the business operations of the Bank. 1. Credit Risk Management The Bank consistently maintains its good loans quality and successfully manages any possible credit risks. The Bank s credit risks including settlement risk, collateral risk, dealt with according to NBC s new Prakas. The Bank also conducts periodic and regular reviews of its existing loans focusing on collateral, capacity for repayment, conditions and conduct of loan account. The Credit Committee plays a vital and primary role in reviewing and monitoring credit risks and recommending necessary actions to eliminate or mitigate the risk exposures, and ultimately to ensure the quality of the Bank s assets. In 2016, all kinds of risk profiles related to credit were assessed carefully and the Bank took steps to provide loans prudently to ensure healthy loans growth and sustainable 2. Liquidity Risk Management The Bank s liquidity coverage ratio is regularly monitored to ensure that the ratio is maintained at more than 60% and gradually increase up to 100% in 2020 as required by regulation. To further strengthen the Bank s liquidity control, the Board set the alert limits 10% higher as a buffer over the regulatory requirement. As at 31 December 2016, the Bank s liquidity coverage ratio was at 204%, which was higher than the limit set by NBC at 60%. 3. Market Risk Management The market risks including interest rate risks and foreign exchange risks are thoroughly monitored and managed to avoid risks arising from any adverse events in the market. Risk Management s functions consist of identifying potential market risks by using risk management tools. 50 Vattanac Bank Annual Report 2016

53 a. Interest Rate Risks The Bank uses the interest rate gap analysis to monitor the market trends and cost of fund, and to analyze the changes of interest rates of deposits and loans. b. Foreign Currency Exchange Risks The Bank manages and maintains its foreign exchange position in accordance with its Assets and Liabilities Management Policy and in compliance with the NBC s laws and regulations. 4. Operational Risk Management key tool to identify and monitor the changes of the risks and the Key Risk Indicators (KRI) as a measurement to identify the effectiveness of the controls. Management is required to report any incident that occurs within their respective areas of responsibilities on a monthly basis and implement any remedial action if a number of incidents exceed the tolerance limit. Vattanac Bank takes proactive and prudent measures to manage and control risks due to changes in the business environment... Risk Management Corporate Governance All committees, under the Executive Committee, play a significant role in reviewing and managing the operational risks to strengthen procedures and take corrective actions promptly. Vattanac Bank Annual Report

54 Corporate Governance (Continued) Policies Internal Control The Bank commits to consistently comply with the Prakas on Internal Control in Banks and Financial Institutions of the NBC and continues to strengthen its internal control mechanisms. The Board ensures the effectiveness of the internal control system, with the assistance of the Audit Committee, to ensure security, accountability and transparency to all stakeholders in accordance with the Bank s corporate mission and objectives. Internal Audit Policy The Internal Audit Policy identifies the purpose, authority, and responsibility of the internal audit function. It outlines the overall internal control system of the Bank and provides guidance for an independent audit function that complies with regulatory requirements and best practices. The objective of internal audit policy is to set up guidelines to assist the Board of Directors and all members of management in the effective discharge of their responsibilities by clearly defining the duties of all parties involved in internal audit process and by providing analyses, assessments, recommendations and pertinent comments for remedies concerning the activities reviewed. The mission of the internal audit function is to ensure that: Bank s policies and related procedures and guidelines are always in compliance with laws, regulations, and best practices; Adequate policies, procedures and guidelines including internal controls are put in place to mitigate risks; There are measures for permanent monitoring and control, and that those policies, procedures and guidelines are observed at all times. 52 Vattanac Bank Annual Report 2016

55 Risk Management Policy The Risk Management Policy is a part of the Corporate Governance Policy of Vattanac Bank. The Bank s philosophy on risk management is that all risks faced must be identified, measured, monitored and managed within the risk management framework and that returns must be commensurate with the risks taken. The Policy is formulated, revised and administered by the Risk Management and Compliance Committee as authorized by the Board of Directors, with the view of ensuring that the Bank s risks are effectively managed to Compliance Policy The adoption of the Compliance Policy reflects the Bank s commitment to abide by all relevant laws, regulations and standards in order to mitigate and eliminate the risk of violations of law, regulations and ethical standards. The Board oversees the performance of the internal control system, with the assistance of the Audit Committee, to ensure security, accountability and transparency... The policy is intended to present how the Bank defines Internal Control Policies Vattanac Bank Annual Report

56 Corporate Governance (Continued) Policies (Continued) To ensure full compliance with the Laws and Regulations related to AML/CFT, the Bank s Board of Directors reviewed and adopted the revised policy on AML/CFT. The AML/CFT Policy seeks to protect Vattanac Bank from being used, intentionally or unintentionally, for money laundering or terrorist financing activities. The policy also aims at ensuring that the entire Bank s domestic and international financial transactions are not in any way used in money laundering or in financing of terrorism. More importantly, this policy protects the Bank from regulatory sanctions and safeguards the Bank s good reputation. To support these objectives, the Bank takes a proactive approach to monitor and review the compliance program and control mechanisms such as customer acceptance policies, suspicious transaction reporting system and detection mechanism. All operations staff are required to attend the AML/CFT refresher training once a year and strengthen staff s AML/CFT education and awareness that is a key deterrent to any attempt to improperly use the Bank s services and products. Whistle Blowing Policy As part of the Bank s corporate governance, the Whistle Blowing Policy with its Whistle Blowing Procedure and Guidelines, was established and implemented to make the Bank fully and consistently compliant with NBC s Prakas on Internal Controls in Banking and Financial Institution. The policy encourages the Bank s management and staff, customers, suppliers and other external parties to disclose or report any concern or misconduct committed by the Bank s staff. The disclosure in good faith and whistle blower protection and confidentiality are the principles included in the policy. 54 Vattanac Bank Annual Report 2016

57 Information Technology Policy The Information Technology Policy sets the standard for performance and properly articulates the bank s IT objectives and its required Information Technology services in order to maintain financial soundness, ensure business continuity, and mitigate risk. It helps to deliver effectiveness, reliability, scalability and security through efficient use of Information Technology system. The Information Technology Policy incorporates IT principles to control and safeguard IT assets that include the Business Continuity Plan and Disaster Recovery Plan, System Center. The Information Technology Policy sets the standard for performance and properly articulates the bank s IT objectives... New Activities and Products (NAP) Policy The New Activities and Products (NAP) Policy was formulated in compliance with the Prakas on Corporate Governance and Prakas on Internal Control in Banks and Financial Institutions. The Policy sets the objectives to assess and evaluate the strategies, procedures and operations related to new activities and products in order to ensure success and risks mitigation prior to any public launch. Information Technology Policy Policies Vattanac Bank Annual Report

58 Corporate Governance (Continued) Policies (Continued) Code of Ethics The Bank s Code of Ethics requires all Vattanac Bank employees, including its directors, management and staff to possess high integrity, honesty, accountability and morality. The Code provides guidelines for Vattanac Bank s employees to: Avoid conflict of interest, Avoid misuse of position, Prevent misuse of information received through the Bank s operations either for personal gain or for any purposes other than the fulfillment of his or her tasks for the Bank, Ensure completeness and accuracy of relevant records, Respect the privacy of customers and ensure the confidentiality of their transactions, and Provide fair and equitable treatment to all customers and others who have a relationship with the Bank. Confidentiality Policy Observing confidentiality of business relations and transactions between the Bank and customers is essential in upholding the Bank s reputation. All employees are required to ensure confidentiality of customers information and transactions including the following: No staff or Director shall, during or after termination of his/her employment with Vattanac Bank, divulge or make use of any information, copyrighted materials, correspondence, accounts or dealings of the Bank or its customers for his/her personal benefit. No business and financial information about any customer shall be used or disclosed to third parties without prior written consent of the customer, unless in accordance with the arrangements for the exchange of information between banks about credit risks, or when disclosure is required by law. 56 Vattanac Bank Annual Report 2016

59 Financial Statements For the year ended 31 December 2016 Reports of the Directors 58 Independent Auditor s Report 64 Balance Sheet 68 Income Statement 69 Statement of Changes in Equity 70 Statement of Cash Flows 71 Notes for the Financial Statements 72 Vattanac Bank Annual Report

60 Report of the Directors The Board of Directors ( BOD or Directors ) has pleasure in submitting their report together with the audited financial statements of Vattanac Bank Limited ( the Bank ) for the year ended 31 December Principal Activities The principal activities of the Bank are the provision of commercial banking and related financial services in the Kingdom of Cambodia. There were no changes in nature of the principal activities during the year. Financial Results The financial results of the Bank for the year ended 31 December 2016 were as follows: For the year ended For the year ended 31 December December 2015 US$ KHR 000 US$ KHR 000 Dividends No dividend was declared or paid during the year (2015: nil). Share Capital On 5 August 2016, the shareholders of the Bank approved to increase the registered and retained earnings as at 31 December The new minimum registered capital shall be Capital dated 22 March of Cambodia s approval. Reserves and Provisions There were no material movements to or from reserves and provisions during the financial year other than disclosed in the financial statements. 58 Vattanac Bank Annual Report 2016

61 Bad and Doubtful Loans Before the financial statements of the Bank were prepared, the Directors took reasonable steps to ascertain that actions had been taken in relation to the writing off of bad loans and making of allowances for doubtful loans, and satisfied themselves that all known and doubtful loans. At the date of this report, the Directors are not aware of any circumstances, which would render the amount written off for bad loans or the amount of allowance for loan losses in Assets Before the financial statements of the Bank were prepared, the Directors took reasonable steps to ensure that any assets, which were unlikely to be realised in the ordinary course of business at their value as shown in the accounting records of the Bank have been written down to an amount which they might be expected to realise. At the date of this report, the Directors are not aware of any circumstances, which would render the values attributed to the assets in the financial statements of the Bank misleading. Valuation Methods At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing method of valuation of assets and liabilities in the financial statements of the Bank misleading or inappropriate. Contingent and Other Liabilities At the date of this report, there does not exist: (a) any charge on the assets of the Bank which has arisen since the end of the financial year which secures the liabilities of any other person, or (b) any contingent liability in respect of the Bank that has arisen since the end of the financial year other than in the ordinary courses of banking business. No contingent or other liability of the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Bank to meet its obligations as and when they fall due. Vattanac Bank Annual Report

62 Report of the Directors (Continued) Change of Circumstances At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Bank, which would render any amount stated in the financial statements misleading. Items of Unusual Nature The results of the operations of the Bank for the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Bank for the current financial year in which this report is made. Events After The Reporting Date At the date of this report, there have been no significant events occurring after balance statements. The Board of Directors The members of the Board of Directors holding office during the year and at the date of this report are: Oknha Sam Ang Madam Chhun Leang Mr. Chan Kok Choy Madam Tal Nay Im Ms. Sam Ang Kanika Mr. Sam Ang Vattanac Ms. Sam Ang Leakhena Mr. Tang Ywe Kwong Mr. George Teo Choa Chee Independent Director Independent Director 60 Vattanac Bank Annual Report 2016

63 Directors Interests The Directors who held office at the end of the financial year and their interests in the shares of the Bank are as follows: 31 December December 2015 Holding % Number of Holding % Number of shares of shares of US$100 each US$100 each 258, ,000 Directors Benefits During and at the end of the financial year, no arrangements subsisted to which the Bank become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments receivable by the Directors as disclosed in the financial statements) by reason of a contract made by the Bank or a related corporation with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest other than as disclosed in the financial statements. Vattanac Bank Annual Report

64 Report of the Directors (Continued) Responsibilities Of The Directors in Respect of the Financial Statements The Board of Directors is responsible for ascertaining that the financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2016, and its financial performance and its cash flows for the year then ended. In preparing these (i) adopt appropriate accounting policies which are supported by reasonable and and guidelines issued by the National Bank of Cambodia ( NBC ), or, if there have been any departures in the interests of fair presentation, these have been (iv) prepare the financial statements on the going concern basis unless it is inappropriate to assume that the Bank will continue operations in the foreseeable (v) effectively control and direct the Bank in all material decisions affecting the operations and performance and ascertain that such have been properly reflected in the financial statements. preparing the financial statements. 62 Vattanac Bank Annual Report 2016

65 Statement of the Board of Directors The accompanying financial statements as set out on pages 68 to 120 present fairly, in all material respects, the financial position of Vattanac Bank Limited as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with issued by the National Bank of Cambodia, and at the date of this statement, there are reasonable grounds to believe that the Bank will be able to pay its debts as and when they fall due. On behalf of the Board of Directors Oknha Sam Ang Chairman Madam Chhun Leang President Phnom Penh, Kingdom of Cambodia Vattanac Bank Annual Report

66 Independent Auditor s Report To the Shareholders of Vattanac Bank Limited Opinion We have audited the financial statements of Vattanac Bank Limited ( the Bank ), which comprise the balance sheet as at 31 December 2016, and the income statement, the and notes to the financial statements, including a summary of significant accounting policies as set out on pages 68 to 120. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with Cambodian National Bank of Cambodia. Basis for Opinion relevant to our audit of the financial statements in Cambodia, and we have fulfilled our audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other matters The financial statements of the Bank as at and for the year ended 31 December 2015, were audited by another auditor who expressed an unmodified opinion on those statements on 10 March Information Other than the Financial Statements and Auditor s Report Thereon Management is responsible for the other information. The other information comprises the Report of the Board of Directors as set out on pages 58 to 63, but does not include the financial statements and our auditor s report thereon. 64 Vattanac Bank Annual Report 2016

67 Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we to report that fact. We have nothing to report in this regard. Responsibilities of Management and the Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial regulations and guidelines issued by the National Bank of Cambodia, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Bank s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either do so. The Board of Directors is responsible for overseeing the Bank s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Vattanac Bank Annual Report

68 Independent Auditor s Report (Continued) maintain professional skepticism throughout the audit. We also: whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. accounting estimates and related disclosures made by management. accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank s ability to continue as a going concern. If we conclude that a material to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 66 Vattanac Bank Annual Report 2016

69 We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. For Deloitte (Cambodia) Co., Ltd. Khoy Kimleng Director Phnom Penh, Kingdom of Cambodia Vattanac Bank Annual Report

70 Balance Sheet As at 31 December December December 2015 Note US$ KHR 000 US$ KHR 000 ASSETS Balances with other banks and financial institutions Other assets Total assets LIABILITIES AND EQUITY Liabilities Deposits from other banks Total liabilities Equity Total equity Total liabilities and equity 68 Vattanac Bank Annual Report 2016

71 Income Statement For the Year Ended 31 December December December 2015 Note US$ KHR 000 US$ KHR 000 Net interest income Net interest income after reversal / (allowance) for loan losses Fee and commission income Fee and commission Net fee and commission income Depreciation and Other operating expenses Profit before income tax Net profit for the year The accompanying notes from pages form an integral part of these financial statements. Vattanac Bank Annual Report

72 Statement of Changes in Equity For the Year Ended 31 December 2016 Share Retained Capital Earnings Total US$ US$ US$ Balance as at 1 January 2015 Net profit for the year Balance as at 31 December 2015 At 31 December 2015 Balance as at 1 January 2016 Net profit for the year Balance as at 31 December 2016 At 31 December 2016 The accompanying notes from pages form an integral part of these financial statements. 70 Vattanac Bank Annual Report 2016

73 Statement of Cash Flows For the Year Ended 31 December 2016 Cash flow from operating activities 31 December December 2015 Note US$ KHR 000 US$ KHR 000 Profit before income tax Depreciation and amortisation Net interest income Changes in working capital Balances with banks and other financial institutions Loans to customers Other assets Deposits from other banks Other liabilities operations Interest received Interest paid Income tax paid activities Cash flow from investing activities Proceeds from disposal of property Cash flow from financing activities Net cash from financing activities beginning of the year Currency translation differences Cash and cash equivalents at the end of the year Vattanac Bank Annual Report

74 Notes for the Financial Statements For the Year Ended 31 December Reporting Entity Vattanac Bank Limited ( the Bank ) was incorporated in Cambodia on 1 July 2002 under the National Bank of Cambodia ( NBC ) to operate as a commercial bank with effect from The principal activities of the Bank comprise the operations of core banking business and the provision of related financial services through its head office and other branches in Cambodia. There were no changes in the nature of these principal activities during the year. The registered office of the Bank is currently located at No. 66, Preah Monivong Boulevard, The financial statements were approved for issue by the Board of Directors on 22 March 2. Summary of significant accounting policies The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the year presented, unless otherwise stated. 2.1 Basis of preparation are prepared under the historical cost convention and drawn up in accordance with issued by the National Bank of Cambodia. The accounting principles applied may differ from generally accepted accounting statements are therefore not intended to present the financial position, financial 72 Vattanac Bank Annual Report 2016

75 those who are informed about Cambodian accounting principles, procedures and practices. The preparation of financial statements in accordance with Cambodian Accounting amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management s best knowledge of current events and actions, actual results ultimately may differ from those estimates. assumptions and estimates are significant to the financial statements are disclosed in Note Basis of aggregation The financial statements include the financial statements of the head office and its 2.3 Financial reporting framework and Finance announced the adoption of Cambodian International Financial Reporting for accounting period beginning on or after 1 January Vattanac Bank Annual Report

76 Notes for the Financial Statements (Continued) For the Year Ended 31 December Summary of significant accounting policies (Continued) 2.3 Financial reporting framework (Continued) completed at the date of this report. 2.4 Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (the functional currency). (ii) Transactions and balances prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and recognised in the income statement. (iii) Presentation in Khmer Riel In compliance with the Law on Accounting and Auditing dated 11 April 2016 and Prakas relating to the preparation and presentation of financial statements and have been made published by the National Bank of Cambodia. The financial statements expressed in Riel are unaudited and should not be construed as be, converted into Riel at this or any other exchange rate. 2.5 Cash and cash equivalents 74 Vattanac Bank Annual Report 2016

77 investments with original maturities of three months or less where the Bank has full ability value. 2.6 Loans to customers All loans to customers are stated in the balance sheet at the amount of principal, less any amounts written off, and allowance for loan losses. An uncollectible loan or portion of a loan classified as bad is written off after taking into management there is no prospect of recovery. 2.7 Allowance for loan losses In compliance with NBC Guidelines, all loans to customers are classified according to the repayment capacity of the counterparty. This repayment capacity is assessed through past payment experience, financial condition of the borrower, business prospective and cash account. The minimum percentage of allowance for doubtful loans to customers are to be maintained according to the assigned classifications. Where reliable information suggests made. Classification Number of Days Past Due Allowance Rate Less than 30 days Doubtful Loss More than 360 days Vattanac Bank Annual Report

78 Notes for the Financial Statements (Continued) For the Year Ended 31 December Summary of significant accounting policies (Continued) 2.7 Allowance for loan losses (Continued) In determining the above allowance, any collateral value other than cash deposits which has been pledged is disregarded. size of the portfolio, previous loss experience, current economic conditions and their effect on clients, the financial situation of clients and the performance of loans in relation to contract terms. Recoveries on loans previously written off are recognised as other operating income in the income statement. Reversal of previous allowance is presented in the allowance for loan losses in the income statement. 2.8 Interest in Suspense recorded as a provision rather than income until it is realised on a cash basis. Interest in suspense is presented as a deduction from loans to customers. 2.9 Other Assets Other assets are stated at cost. An estimate is made for doubtful receivables based on a review of outstanding amounts at the reporting date Statutory Deposits on Banking and Financial Institutions and are determined by defined percentages of deposits are stated at cost Property and Equipment (i) 76 Vattanac Bank Annual Report 2016

79 (ii) Land and work in progress are not depreciated. Depreciation of other property and the individual assets at the following rates: Furniture and fitting Motor vehicles (iii) (iv) (v) already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard expenditure is recognised as an expense in the period in which it is incurred. Gains or losses arising from the retirement or disposal of an item of property and proceeds and the carrying amount of the assets and are recognised in the income statement on the date of retirement or disposal Intangible assets Intangible assets comprise of computer software licences including costs incurred in at cost less accumulated amortisation and impairment losses, if any. Amortisation is recognised in the income statement on a declining balance method at a 2.13 Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any Vattanac Bank Annual Report

80 Notes for the Financial Statements (Continued) For the Year Ended 31 December Summary of significant accounting policies (Continued) 2.13 Impairment (Continued) (i) Financial assets (Continued) estimate future cash flows of that asset. This does not apply to loans and provisioning Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. occurring after the impairment loss was recognised. to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. in use and its fair value less cost to sell. In assessing value in use, the estimated future reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. Deposits from customers and other banks are stated at cost. 78 Vattanac Bank Annual Report 2016

81 2.15 Other Liabilities Other liabilities are stated at cost Provisions A provision is recognised in the balance sheet when the Bank has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic current market assessments of the time value of money and, where appropriate, the risks specific to the liability Income Recognition Interest income is recognised on an accrual basis. Where a loan becomes cash basis. Income from the various activities of the Bank is accrued using the following basis: (i) Arrangement fees and commissions on services and facilities extended to customers are recognised as income when the service is provided. (ii) Commitment fees and guarantee fees on services and facilities extended to provided Interest Expense Interest expense is recognised on an accrual basis Leases Operating leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income Vattanac Bank Annual Report

82 Notes for the Financial Statements (Continued) For the Year Ended 31 December Summary of significant accounting policies (Continued) 2.20 Income tax and deferred tax Income tax on profit or loss for the period comprises of current and deferred tax. Income tax is recognised in the income statement. Current tax is the expected tax payable on the taxable income for the period using tax rates payable in respect of previous years. Deferred tax is provided using the balance sheet method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised Rounding of amounts Amounts in the financial statements have been rounded off to the nearest dollar and 3. Critical Accounting Estimates and Judgments 3.1 Key sources of estimation uncertainty The Bank makes estimates and assumptions that affect the reported amounts of assets and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Allowance for loan losses In compliance with NBC Guidelines, all loans to customers are classified according to the repayment capacity of the counterparty. This repayment capacity is assessed through past payment experience, financial condition of the borrower, business prospective and 80 Vattanac Bank Annual Report 2016

83 c account. The minimum percentage of allowance for doubtful loans to customers are to be maintained according to the assigned classifications. Where reliable information s allowance is made. (ii) Income tax Often, different interpretations exist among the numerous taxation authorities and which are empowered by law to impose fines, penalties and interest charges. These factors may create significant tax exposures for the Bank. Directors believe that based on their interpretation of the current tax legislation. However, the relevant authorities may have different interpretations and the effects could be significant. 3.2 Critical judgments in applying accounting policies Bank's accounting policies that have the most significant effect on the amount recognized in these financial statements apart from those involving estimates, which are dealt with above. 4. Cash on Hand 31 December December 2015 US$ KHR 000 US$ KHR 000 Khmer Riels Vattanac Bank Annual Report

84 Notes for the Financial Statements (Continued) For the Year Ended 31 December Balances with the NBC 31 December December 2015 US$ KHR 000 US$ KHR 000 Negotiable Certificate of Deposit (a) Reserve requirement customers in KHR and other currencies, respectively. (b) Capital guarantee refundable should the Bank voluntarily cease its operations in Cambodia and it is not 82 Vattanac Bank Annual Report 2016

85 (c) Interest rates interest at the following annual rates: Balances with other banks and financial institutions 31 December December 2015 US$ KHR 000 US$ KHR 000 Local banks and financial institutions: Overseas banks: Vattanac Bank Annual Report

86 Notes for the Financial Statements (Continued) For the Year Ended 31 December Balances with other banks and financial institutions (Continued) Balances with other banks and financial institutions are analysed as follows: (a) By Maturity 31 December December 2015 US$ KHR 000 US$ KHR 000 (b) By Currency 31 December December 2015 US$ KHR 000 US$ KHR 000 Khmer Riel Thai Baht 84 Vattanac Bank Annual Report 2016

87 7. Loans to Customers 31 December December 2015 US$ KHR 000 US$ KHR 000 Term loans Overdrafts Credit cards Allowance for loan losses: General Movements of allowance for loan losses are as follows: 31 December December 2015 US$ KHR 000 US$ KHR 000 the year Vattanac Bank Annual Report

88 Notes for the Financial Statements (Continued) For the Year Ended 31 December Loans to Customers (Continued) The gross loans to customers are analysed as follows: (a) By Classification 31 December December 2015 US$ KHR 000 US$ KHR 000 Doubtful loans Loss loans finance (b) By Industry 31 December December 2015 US$ KHR 000 US$ KHR 000 Retails Wholesale Real estate Agriculture Others 86 Vattanac Bank Annual Report 2016

89 (c) By Exposure 31 December December 2015 US$ KHR 000 US$ KHR 000 A large exposure is defined under the NBC Prakas as the overall gross exposure of the of the Bank s net worth. The gross exposure is the higher of the outstanding loans or commitments and the authorised loans or commitments. (d) By Maturity 31 December December 2015 US$ KHR 000 US$ KHR to 5 years Over 5 years (e) By Currency 31 December December 2015 US$ KHR 000 US$ KHR 000 Vattanac Bank Annual Report

90 Notes for the Financial Statements (Continued) For the Year Ended 31 December Loans to Customers (Continued) (f) By Residency Status 31 December December 2015 US$ KHR 000 US$ KHR 000 Residents (g) By Relationship 31 December December 2015 US$ KHR 000 US$ KHR 000 (h) By Interest Rate (per annum) Term loans Overdrafts Trust receipts Credit cards 8. Other assets 31 December December 2015 US$ KHR 000 US$ KHR 000 Interest receivable from balances with the NBC and other banks Others 88 Vattanac Bank Annual Report 2016

91 9. Property and equipment Computer Leasehold Furniture and office Motor Work For the year ended 31 December 2016 Cost Additions Transfer Disposal Less: Accumulated depreciation At 1 January 2016 Disposal At 31 December 2016 Carrying amounts Vattanac Bank Annual Report

92 Notes for the Financial Statements (Continued) For the Year Ended 31 December Property and equipment (Continued) Computer Leasehold Furniture and office Motor Work For the year ended 31 December 2015 Cost Additions Transfer Less: Accumulated depreciation At 1 January 2015 At 31 December 2015 Carrying amounts 90 Vattanac Bank Annual Report 2016

93 10. Intangible Assets Computer Software Licences 31 December December 2015 US$ KHR 000 US$ KHR 000 Cost At 1 January Additions Less:Accumulated Amortisation At 1 January Carrying Amounts 11. Deposits from Other Banks 31 December December 2015 US$ KHR 000 US$ KHR 000 Fixed deposits The above amounts are analysed as follows: Vattanac Bank Annual Report

94 Notes for the Financial Statements (Continued) For the Year Ended 31 December Deposits from Other Banks (Continued) (a) By maturity: 31 December December 2015 US$ KHR 000 US$ KHR to 3 months 31 December December 2015 US$ KHR 000 US$ KHR 000 (b) By residency status Residents (c) By relationship (d) By currency (e) By interest rate Fixed deposits 92 Vattanac Bank Annual Report 2016

95 31 December December 2015 US$ KHR 000 US$ KHR 000 The above amounts are analysed as follows: (a) By maturity 31 December December 2015 US$ KHR 000 US$ KHR 000 Vattanac Bank Annual Report

96 Notes for the Financial Statements (Continued) For the Year Ended 31 December 2016 (Continued) 31 December December 2015 US$ KHR 000 US$ KHR 000 (b) By residency status Residents (c) By relationship (d) By currency Khmer Riel (e) By interest rate bear the following interest rates per annum: Current deposits Fixed deposits 94 Vattanac Bank Annual Report 2016

97 13. Other liabilities 31 December December 2015 US$ KHR 000 US$ KHR 000 Others 14. Taxation (a) Income tax liabilities 31 December December 2015 US$ KHR 000 US$ KHR 000 At 1 January Currency translation differences based on its assessment of many factors, including interpretations of tax law and prior experience. Vattanac Bank Annual Report

98 Notes for the Financial Statements (Continued) For the Year Ended 31 December Taxation (Continued) (b) Deferred tax Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. Deferred income taxes are calculated on temporary differences under the liability 31 December December 2015 US$ KHR 000 US$ KHR December December 2015 US$ KHR 000 US$ KHR 000 At 1 January Currency translation differences 96 Vattanac Bank Annual Report 2016

99 31 December December 2015 US$ KHR 000 US$ KHR 000 Deferred tax assets Deferred tax liabilities Accelerated tax depreciation (c) Income tax expense 31 December December 2015 US$ KHR 000 US$ KHR 000 Deferred tax In accordance with the Cambodian Law on Taxation, the Bank has an obligation to pay Vattanac Bank Annual Report

100 Notes for the Financial Statements (Continued) For the Year Ended 31 December Taxation (Continued) tax expense as shown in the income statement is as follows: 31 December December 2015 US$ KHR 000 US$ KHR 000 Tax at application income Tax reassessment in respect balances ment of Taxation. pretation of current tax legislation. 98 Vattanac Bank Annual Report 2016

101 15. Share capital 31 December December 2015 US$ KHR 000 US$ KHR 000 Registered, issued and fully paid ordinary share of The details of shareholding were as follows: 31 December December 2015 Number of Number of Holding % shares Holding % shares Madam Chhun Leang of Banking and Financial Institutions dated 16 June 2016 to increase registered capital by On 5 August 2016, the shareholders of the Bank approved to increase the registered and Vattanac Bank Annual Report

102 Notes for the Financial Statements (Continued) For the Year Ended 31 December Interest income For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR 000 Balances with other banks 17. Interest expense For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR Vattanac Bank Annual Report 2016

103 18. Net fee and commission income 31 December December 2015 US$ KHR 000 US$ KHR 000 Fee and commission income: Loan processing and ATM fees Fee and commission Net fee and commission income For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR 000 Recoveries from written Net gain on foreign exchange Vattanac Bank Annual Report

104 Notes for the Financial Statements (Continued) For the Year Ended 31 December Personnel expenses The personnel expenses consist of the salaries and wages, bonuses, incentive and other 21. Depreciation and amortisation For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR Other operating expenses For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR 000 Insurance 102 Vattanac Bank Annual Report 2016

105 23. Cash and cash equivalents 31 December December 2015 US$ KHR 000 US$ KHR 000 Balances with the NBC: Fixed deposits NCD Balances with other banks and financial institutions: 24. Commitments and contingencies (a) Loan commitments, guarantees and other financial liabilities instruments that commit it to extend credit to customers, guarantees and other facilities as follows: 31 December December 2015 US$ KHR 000 US$ KHR 000 Acceptance Vattanac Bank Annual Report

106 Notes for the Financial Statements (Continued) For the Year Ended 31 December Commitments and contingencies (Continued) (b) Operating lease commitments renewable at the end of the lease term. 31 December December 2015 US$ KHR 000 US$ KHR 000 Later than one year and no 25. Related party balances and transactions The volumes of related party transactions, outstanding balances at year end, and related expenses and income for the year were as follows: (a) Deposits from related parties 31 December December 2015 US$ KHR 000 US$ KHR 000 * Related companies include the affiliates of the Bank. 104 Vattanac Bank Annual Report 2016

107 (b) Loans to related parties 31 December December 2015 US$ KHR 000 US$ KHR 000 Related companies (c) Interest expense on deposits from related parties For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR 000 (d) Interest, fees and commission income from related parties For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR 000 Vattanac Bank Annual Report

108 Notes for the Financial Statements (Continued) For the Year Ended 31 December Related party balances and transactions (Continued) (e) Compensation to shareholders/directors For Year Ended For Year Ended 31 December December 2015 US$ KHR 000 US$ KHR 000 Directors fees and Rental of land and buildings 26. Financial risk management (a) Overview The Bank has exposures to the following risks: The Bank does not use derivative financial instruments such as foreign exchange contract and interest rate swaps to manage its risk exposures. The Board of Directors has overall responsibility for the establishment and oversight of the Bank s risk management. The Board has established the Audit Committee, Risk Management and Compliance Committee and New Activities and Products Committee which are responsible for developing and monitoring Bank risk management policies in members and report regularly to the Board of Directors on their activities. The Risk Management and Compliance Committee was established to assist the Board in its role and responsibilities over risk management and compliance of the Bank relating to risks in business operations and risk monitoring process. These include risk 106 Vattanac Bank Annual Report 2016

109 identification, risk management, risk monitoring and effective compliance with laws and regulations in accordance with the Bank s risk management policies approved by the Board. The Risk Management and Compliance Department plays an important role on a monitor the potential risks associated with the operations of the Bank and its branches Terrorism set out by the NBC. The Audit Committee is assisted in these functions by Internal Audit. Internal Audit procedures, the results of which are reported to the Audit Committee. In addition, the Audit Committee monitors and evaluates the efficiency of the management structure, policies and procedures, activities and operations of the Bank as well as compliance with laws and regulations. The New Activities and Products Committee was established to assist the Board to ensure that policies, charters and guidelines are in place in order to assess, evaluate and (b) Operational risk internal processed, people and systems or from external events. This includes legal risk, but excludes reputational and strategic risk. Legal risk includes, but is not limited to, exposure to fines, penalties, or punitive damage resulting from supervisory actions, as well as private settlements. The operational risk losses are managed through establishing operational risk management processes, proper monitoring and reporting of the business activities by the operational risk committee and oversight provided by the senior management of the Bank. The Bank s operational risk management entails the establishment of clear organisational structures, roles and control policies. Various internal control policies and measures have been implemented including the establishment of signing authorities, defining system parameters controls, streamlining procedures and documentation and Vattanac Bank Annual Report

110 Notes for the Financial Statements (Continued) For the Year Ended 31 December Financial risk management (Continued) (c) Credit risk Credit risk is the financial loss to the Bank if a borrower or counterparty fails to meet its contractual obligations, and arises principally from the loans to customers with other banks and financial institutions. (i) Management of credit risk The lending activities are guided by the Bank s credit policy to ensure that the overall healthy, and credit risks are well diversified. The credit policy documents the lending policy, collateralpolicy and credit approval processes, including the Bank s own internal credit risk rating system, and procedures implemented to ensure compliance with NBC Guidelines. The Bank has established the Core Credit Risk Policy which is designed to govern the that set out the plan for a particular product or portfolio, including the target market, terms and conditions, documentation and procedures under which a credit product will be offered and measured. Credit risk ratings are reviewed and updated on an annual basis, and in events of (i) (ii) Risk limit control and mitigation policies The Bank operates and provides loans to individuals or enterprises within the Kingdom of Cambodia. The Bank manages limits and controls concentration of credit risk whenever they are identified. Large exposure is defined by the NBC as overall credit Bank s net worth. 108 Vattanac Bank Annual Report 2016

111 To manage the exposure risk, the Bank has closely monitored on large credits, impaired credits and the overall level of provisioning on a regular basis and up on The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security in the form of collateral for loans to customers, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral. The principal collateral types to secure for loans to customers are: Cash in the form of fixed and margin deposits. (iii) Exposure to credit risk 31 December December 2015 US$ KHR 000 US$ KHR 000 Credit risks exposures sheet assets: Balances with other banks and financial Credit risk exposures sheet items: Guarantees, acceptances and other financial facilities Vattanac Bank Annual Report

112 Notes for the Financial Statements (Continued) For the Year Ended 31 December Financial risk management (Continued) (c) Credit risk (Continue) (iii) Exposure to credit risk (Continued) The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2016 and 2015, without taking account of any collateral held or other above are based on net carrying amounts. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from its loans on the followings: The Bank has a credit evaluation process in place for granting loans to customers. 31 December December 2015 US$ KHR 000 US$ KHR 000 Loans: Neither past due nor impaired Impaired loans Individually impaired loans to customers are loans for which the Bank determines that 110 Vattanac Bank Annual Report 2016

113 and interest due according to the contractual terms of the loans. In compliance with NBC Guidelines, an allowance for bad and doubtful loans is made allowance for impairment is made depending on the classification concerned, unless other information is available to substantiate the repayment capacity of the Past due but not impaired loans Past due but not impaired loans are those for which contractual interest or principal information is available to indicate otherwise. In compliance with NBC Guidelines Loans with renegotiated terms/restructured loans Loans with renegotiated terms are loans that have been rescheduled or refinanced in accordance with an agreement setting forth a new repayment schedule on a periodic to repay the loan as originally agreed. Loans to be restructured are analysed on the basis of the business prospects and repayment capacity of the borrower according to market conditions being based on realistic and prudent assumptions. Once the loan is restructured it remains in the same category independent of satisfactory performance after restructuring. The classification is not improved unless there are no arrears in repayment of principal and interest within 3 instalment periods and within a period of not less than 3 months. In compliance with NBC Guidelines, the Bank shall remove a loan or a portion of a loan from its balance sheet when the Bank loses control of the contractual rights over prospect of recovery. Vattanac Bank Annual Report

114 Notes for the Financial Statements (Continued) For the Year Ended 31 December Financial risk management (Continued) (c) Credit risk (Continue) Collateral The Bank holds collateral against loans in the form of mortgage interests over property internally and externally by the Bank and the external property appraisers, respectively. It is not practical to obtain fair value of all collaterals due to costs of obtaining such information outweigh the potential benefits. The Bank s policy is to fund approximately taken into account when determining the allowance for loan losses. The analysis of concentrations of credit risk from loans to customers at the balance date (d) Market risk Market risk is the risk of loss arising from adverse movement in the level of market prices or rates, the two key components being foreign currency exchange risk and interest rate risk. As of 31 December 2016, the Bank did not have financial instruments carried at fair value. The Bank does not use derivative financial instruments such as foreign exchange contract and interest rate swaps to hold its risk exposures. (i) Foreign currency exchange risk Foreign currency exchange risk refers to the adverse exchange rate movements on foreign currency exchange positions taken from time to time. The Bank maintains a policy of not exposing itself to large foreign exchange positions. Any foreign currency exchange open limits and tolerant limits set up by the Board of Directors. As of 31 December 2016, balances in monetary assets and liabilities denominated in currency exchange risk was presented. 112 Vattanac Bank Annual Report 2016

115 (ii) Interest rate risk Interest rate risk refers to the volatility in net interest income as a result of changes in the levels of interest rate and shifts in the composition of the assets and liabilities. Interest rate risk is managed through close monitoring of returns on investment, market pricing, cost of funds and through interest rate sensitivity gap analysis. The potential reduction in net interest income from an unfavourable interest rate movement is monitored by Asset and Liability Committee. No sensitivity analysis is presented for interest rate risk as the Bank has no financial instruments exposed to variable interest rate as of the reporting date. An analysis of the interest rate risk pertaining to the Bank s assets and liabilities is disclosed below. Vattanac Bank Annual Report

116 Notes for the Financial Statements (Continued) For the Year Ended 31 December Financial risk management (Continued) 1 month months months years years sensitive Total At 31 December 2016 Assets Cash on hand Balances the NBC Balances with other banks and financial institutions Loans to customers * Other assets Liabilities Deposits from other banks Other liabilities Interest sensitivity gap In KHR 000 equivalents *Gross loans to customers excluding interest receivables, interest in suspense and allowance for loan losses. 114 Vattanac Bank Annual Report 2016

117 1 month months months years years sensitive Total At 31 December 2015 Assets Cash on hand Balances the NBC 8,600,000 Balances with other banks and financial institutions Loans to customers * Other assets Liabilities Deposits from other banks Other liabilities Interest sensitivity gap In KHR 000 equivalents * Gross loans to customers excluding interest receivables, interest in suspense and allowance for loan losses. Vattanac Bank Annual Report

118 Notes for the Financial Statements (Continued) For the Year Ended 31 December Financial risk management (Continued) (ii) Interest rate risk (Continued) Fair value sensitivity analysis for fixed rate instruments The Bank does not account for any fixed rate liabilities at fair value through profit or loss, and the Bank does not have derivatives as at year end. Therefore, a change in interest rates at the reporting date would not affect income statement. (e) Liquidity risk commitments and obligations when they fall due at a reasonable cost. closely monitors all inflows and outflows and the maturity gaps through periodical and obligations as and when they fall due. maturity groupings based on the remaining contractual maturity. 116 Vattanac Bank Annual Report 2016

119 1 month months months years years Total At 31 December 2016 Assets Cash on hand Balances the NBC Balances with other banks and financial institutions Loans to customers * Other assets Liabilities Other liabilities Liquidity gap In KHR 000 equivalents * Gross loans to customers are expected cash inflows excluding interest receivables, interest in suspense and allowance for loan losses. Vattanac Bank Annual Report

120 Notes for the Financial Statements (Continued) For the Year Ended 31 December Financial risk management (Continued) 1 month months months years years Total At 31 December 2016 Assets Cash on hand Balances the NBC Balances with other banks and financial institutions Loans to customers * Other assets 13,686 Liabilities Other liabilities *Gross loans to customers are expected cash inflows excluding interest receivables, interest in suspense and allowance for loan losses. 118 Vattanac Bank Annual Report 2016

121 (f) Capital management whole. The Bank s policy is to maintain a strong capital base so as to maintain market confidence and to sustain further development of the business. The impact of the level of capital on shareholders return is also recognised and the Bank recognised the need to maintain a balance between the higher returns that might be possible with greater gearing and advantages and security afforded by a sound capital position. (ii) Capital allocation The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital. Vattanac Bank Annual Report

122 Notes for the Financial Statements (Continued) For the Year Ended 31 December Fair values of financial assets and liabilities The Bank did not have financial instruments measured at fair value. Fair value represents the amount at which an asset could be exchanged or a liability settled not available for a significant proportion of the Bank s financial assets and liabilities. Fair values, therefore, have been based on management assumptions according to the profile of the asset and liability base. In the opinion of the management, the carrying amounts of the financial assets and liabilities included in the balance sheet are a reasonable estimation of their fair values. 29. Comparative information Certain corresponding figures have been reclassified to conform to current year presentation of the financial statements. 120 Vattanac Bank Annual Report 2016

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124 122 Vattanac Bank Annual Report 2016

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